Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly
in an index.

High yield bonds and senior secured loans rise in August: The leveraged credit markets rose in August against the backdrop of solid corporate earnings and stronger U.S. economic data. HY Bonds posted their third straight monthly gain and Senior Secured Loans recorded their thirteenth monthly gain over the past 14 months. HY Bonds returned 0.72% in August, building on the gains of July, as U.S. equities hit record highs and U.S. Treasury yields declined.1 Investor fund flows remained positive in August, with high yield bond mutual funds posting their second straight monthly inflow.2 Senior Secured Loans posted a more modest gain, underperforming HY Bonds for the second straight month.1,3 Year to date, however, Senior Secured Loans continue to outperform both HY Bonds and other higher-duration fixed income investments. For perspective, the Barclays Agg returned 0.64% in August, benefiting from the decline in U.S. Treasury yields, but remains negative in 2018 due in part to the index’s higher sensitivity to interest rates.4

Treasury yields decline amid global concerns: The yield on the U.S. 10-year Treasury note declined in August as trade-related tensions and geopolitical concerns sent long-term yields back below 3%. By month’s end, U.S. 10-year Treasury yields were approximately 2.86%, compared to 3.00% at the beginning of the month. The U.S. 2-year Treasury note yield, which is more sensitive to U.S. Federal Reserve rate expectations, remained relatively flat in August, resulting in the flattest yield curve in over 11 years.5 The decline in long-term yields (and concurrent rise prices) in the last half of August contributed to the generally strong performance of the Barclays Agg, which benefited from its relatively high allocation to U.S. Treasuries and other higher-duration investments. However, this is more the exception than the rule in a year that has seen U.S. Treasury yields generally trend higher. Both HY Bonds and Senior Secured Loans have outperformed the higher-duration Barclays Agg through the first eight months of the year. Senior secured loans, which have floating rate coupons, have particularly benefited from the rise in short-term interest rates seen so far in 2018, outperforming both high yield bonds and the Barclays Agg due in part to the index’s higher sensitivity to rising interest rates.

KEY TAKEAWAY

High-duration fixed income, such as the Barclays Agg, performed well in August due to falling 10-year U.S. Treasury yields.

Index descriptions: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S.
dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS
(agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).
ICE BofAML U.S. High Yield Index is designed to track the performance of U.S. dollar-denominated below investment grade corporate debt publically
issued in the U.S. domestic market. S&P/LSTA Leveraged Loan Index is a market value-weighted index designed to measure the performance of the
U.S. leveraged loan market.

This credit market commentary and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or
promotion of FS Investments or any FS Investments fund. The credit market commentary is subject to change at any time based on market or other conditions,
and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such credit market commentary. The credit market commentary
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expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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